Time Warner and 21st Century Fox — the dance continues. Here’s your trade on TWX. (July 16, 2014)
I want to look at Time Warner ( NYSE:TWX ). It turns out that Twentieth Century had a take over offer for Time Warner ( NYSE:TWX ), and Time Warner ( NYSE:TWX ) didn’t want it. So the stock gaps up and then it stays there and you’re thinking, “Well why does it do that when they rejected a takeover offer that we didn’t really know about?” The reason that it did this is because now the market is thinking; “Well maybe Murdoch is going to bump his offer up, the guy doesn’t let go too easily.”
So what are you going to do with this stock? Well first of all let’s look at it just on the intraday action. When a stock gaps up this much, say on earnings or something like that, most of the time that thing is going to reverse, at least to some extent, at least it’s giving you some kind of a trade to the downside. But here the stock traded as low as a little bit below $82.00 and then rallied higher. All of this happened really during the first half an hour or so of the market; and then after that the market has been churning around on very, very light volume.
So why am I going into this? I’m going into this because now you’ve got a new support level here for this stock, that’s 81.42, that’s the intraday low. Why does that matter? Well, because you can be long this stock and anticipate that Murdoch is going to make another offer. You can buy it now and keep your stop right around 81.35, something like that, so why would you do that?
Well look at the weekly chart, if we didn’t know exactly why this stock took off, I mean this would be a bonafide breakout and we’d be looking for $100.00 on this just simply as a function of how long this stock had been trading sideways. You look at the volume, it’s huge, so this was a big, big power move; as it turns out, we know why the stock did that and we know that the market thinks that Murdoch may make another bid.
So what would I do? If you want to be long this stock, again, go ahead and get long, just keep a pretty tight stop on it because, and here’s the other thing, this is a riskier trade than you might think. What happens if between the hours of 4:00 P.M. and 9:30 A.M. the next day Murdoch comes out and says, “You know what? Forget you guys, I don’t really want you after all, that was my final offer.” That thing drops like a rock. That is my trade analysis on Time Warner ( NYSE:TWX ), I hope it works for you.
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